ARM Borrowers Seek Rescue from FHA Program

Dallas-Lenders across the country are making FHA a product of choice. But a high percentage of loan originators in the mortgage industry have only been in the business for three years, according to industry insiders who say these originators don't have experience with the product.

Rodney Anderson, executive director and senior managing partner of Rodney Anderson Lending Services here, says it is crucial that they go through extensive training to learn more about FHA before offering it to consumers.

"The borrower requirements and work to complete these transactions is much more than a lot of loan officers are used to. Some have never known the documentation environment," he said.

The good thing is that lenders who have been doing FHA for years are being rewarded. Mr. Anderson said FHA and VA have done tremendously well in recent months and Texas consumers are taking advantage of interest rates at a 37-year low.

Based on loans he originated in December 2008, new mortgage activity doubled when compared to loan activity from December 2007. Mr. Anderson originated 331 pre-approvals in December 2007 and 683 in December 2008. And while many see this as a refinance boom, he says it's important to note that a significant portion of those loans - roughly 7 out of 10 - were going to individuals purchasing new homes.

"Despite the stagnation we're hearing about in the retail and automotive sector, there are still individuals out there who are buying homes and taking advantage of lower rates in this buyer's market," he said.

Mr. Anderson foresees an additional 50% higher production this year. "In Texas, our housing values have only dropped 2.8% year-over-year. Our home-equity loan loss limits the amount of people who could take out cash refinances. In Texas, you can only go up to 80% in the appraisal value where many states were 100%, 120%," he said.

"Texas is a flatland area. You can build everywhere. In the Dallas-Forth Worth area, you can build north, you can build east, west and south. There is always room for growth. And our cost of living has also been really good."

Going forward, it is expected that more ARM borrowers will get into FHA and conventional loans, but foreclosures will continue to go up because of rising unemployment numbers.

Dennis Hedlund, president of iEmergent, a Des Moines-based company that provides intelligence to the mortgage banking industry, forecasts there will be 130,000 FHA loans originated across the 254 counties located in Texas totaling $15.9 billion.

"The interesting thing is that 50 of those counties will generate 124,000," he said. "Texas has a lot of counties that don't have many people in them. The largest of the originations will be concentrated in Harris County with 27,000 loans."

In today's market, Mr. Hedlund says some wholesalers may call themselves a loan shop that is looking for transactions. Some of these aggregators or loan originators might see the loans as simply a transaction to make money. In these instances, he said the market could see people push programs like FHA, and as a result, the documentation would have less quality to it.

"The first problems show up in early delinquency. That is the problem with expanding too fast in any program," he said. "In Texas, the worry isn't as much there because they have a long history of utilizing FHA correctly and having it be a big part of the lending community."

In places like North Carolina and Texas, there is a great deal of experience working with FHA, but in other states in the Midwest for instance, there is a lot of volume and no FHA experience. "National lenders need to be aware of where the possibilities are for having quality loans."

In Birmingham, Mich., business has picked up big time for Shore Mortgage, another FHA lender with 25 years experience in doing these types of loans. At this point, going into 2009, the company anticipates production in the $2 billion range.

Because of Shore's substantial activity in the past year and in anticipation of projected 2009 activity, president Robert Rahal said the company is seeking to hire an additional 80 to 100 new employees including loan officers, underwriters, processors, closers, post-closing specialists and account executives. The lender has a complete educational program and is training eligible applicants without prior experience. And the company is encouraging those with ethnic language capabilities to apply.

FHA can also be used to help communities with foreclosures and REO properties. "It has one or two offerings on its menu platform. It allows for home improvements and things like that, so that makes it more appealing to those considering buying a bank-owned home or a home that doesn't have that hands-on care," Mr. Rahal said.

"It may have been foreclosed on or had some problem in the past. It needs some cosmetic enhancement. The FHA would be allotted. We are interacting with real estate agents in local areas who are familiar with the values there. If the property needs flooring or paint, FHA is an ideal loan."

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